SINGAPORE: The dollar was stable on Wednesday on wagers the Federal Reserve is unlikely to cut rates until later this year ahead of crucial inflation readings this week, while the yen drifted to its weakest in four weeks.
The dollar was also lifted by rising Treasury yields after a lacklustre debt auction for sales of two-year and five-year notes that raised doubts about demand for US government debt.
The euro was 0.06% lower at $1.0850 but on course for a 1.7% gain for the month, its first month of gains in 2024. Sterling was last at $1.2754, on course for a 2% gain in May.
The Australian dollar spiked higher before steadying, up 0.08% at $0.6654 after Australian consumer price inflation unexpectedly rose to a five-month high in April, adding to risks the next move in interest rates might be upward.
Data on Tuesday showed US consumer confidence unexpectedly improved in May after deteriorating for three straight months, but worries about inflation persisted and many households expected higher interest rates over the next year.
The mixed survey comes as markets contemplate the Fed’s next move, with markets now pricing in 34 basis points of cuts this year compared with 150 bps of easing priced in at the start of 2024.
A rate cut in September is a coin toss as still sticky inflation along with pockets of weakness in the world’s largest economy amid a strong labour market keep shifting expectations around US rates.
Market focus this week will be on a slew of inflation reports, with German inflation data due on Wednesday and the wider euro zone’s reading on Friday.
Dollar ebbs as markets await key global inflation reports
The main event though will be when the US core personal consumption expenditures (PCE) price index report – the Federal Reserve’s preferred measure of inflation – is released on Friday. Expectations are for it to hold steady on a monthly basis.
Against a basket of currencies, the dollar index was little changed at 104.67, inching away from the near two-week low of 104.33 it touched on Tuesday.
“FX markets continue to mark time in anticipation of core PCE data later this week,” said Christopher Wong, currency strategist at OCBC. “We should continue to see 104-105 holding up until the next catalyst comes along.”
American Dollar Exchange Rate